Job creation and development in 2020

Prime Minister Imran Khan while inaugurating the Allama Iqbal Industrial City Faisalabad stated that his government's priorities are job creation and development and industrialization, exports, agriculture, tourism and technical education will be given special importance. He further stated that "Pakistan was on the path to industrialization in the 1960s but in 70s we adopted wrong policies and started a defamation campaign against industrialists. Without investment we cannot move forward as we have developed a roadmap for industrialization and increasing exports. It's the need of the hour to increase productivity of agriculture."

The Prime Minister would be well advised to peruse an article written by Dr Ishrat Hussain, his Advisor for Institutional Reforms and Austerity, titled "Pakistan's Growth Experience 1947-2007" in which real GDP growth during 1960-69 is given as 6.31 percent, followed by 4.9 percent during 1970-79 to 6.3 percent in 1980-89 to 4.4 percent in 1990-99. In the first year of the Khan administration the growth rate was 3.3 percent and in the current year despite his claims that this would be a year of growth and development, backed by his Advisor on Finance Hafeez Sheikh who reckons the rate will be around 3 percent which is still lower than the average of the 1970s, the International Monetary Fund (IMF) in its first review report dated December 2019 did not revise its estimate of 2.4 percent upward.

Be that as it may, one can fully support the Prime Minister's sentiments however the policies that are currently being implemented by his economic team leaders under the IMF programnme are unlikely to achieve his salutary objectives notably industrialization, and export promotion. The large scale manufacturing sector (with implications on the medium and small scale downstream industries) witnessed negative 6.8 percent growth. According to the business community, the following are four main reasons:

(i) high utility charges - higher than other regional countries making our products uncompetitive. Unfortunately, the challenging governance reforms envisaged under the IMF programme particularly for the power sector remain unimplemented and the government, like its predecessors, is focused on raising rates to meet the IMF (and other donors') full cost recovery condition; additionally subsidies, 7.5 cents per unit to industries, announced by the government are not being met with the Discos increasing rates under fuel adjustment charges. With the rupee over valued by about 5 percent as of October these charges are higher than they need to be in any event; (ii) refunds remain pending and in spite of periodic commitment to release all refunds the Ministry of Finance strapped for cash has not been able to meet its commitment in this regard; (iii) a high discount rate which is disabling industry from accessing liquidity that is also being compromised due to piling refunds; and (iv) big businessmen, particularly the thirty odd chief executives of big companies who recently met with the Chief of Army Staff as well as the Prime Minister complained about National Accountability Bureau's high handedness as a deterrent to investment. And while the amended NAB ordinance would take care of this complaint though the Federal Board of Revenue maybe more proactive in pursing tax evaders in its attempt to minimize the shortfall in its unrealistically high target than NAB. However time will tell how much, if any, beneficial impact would be evident in terms of private sector investment.

One would hope that the Prime Minister bears in mind the fact that there has been no empirical evidence or study that links subsidies/incentives and industrial estates/economic zones to higher industrialization and exports. There is therefore an urgent need to undertake such studies instead of relying on the same policies as were in use in the past. This would not only enable him to streamline subsidies (utility and/or fiscal) but also ensure that industrialization gathers pace. One factor that he would be well advised to consider is that Pakistan has traditionally exported surplus output and does not have an industry exclusively geared towards exports.

The government has yet to release the budgeted amount for either: (i) Ehsaas programme which received less than one percent of the budgeted amount in the first quarter of last year, and (ii) public sector development programme had been disbursed only 8.8 percent during the first quarter. The IMF in its first review report also noted that the indicative targets for both education and health have not been met in the first quarter though it was added that "the revised [indicative target] IT still envisages an increase in health and education spending as a percentage of GDP in FY 2020."

To conclude, as Shakespeare stated so aptly there is much rotten in the state of Denmark and the situation is unlikely to change without some major revisions in policies.